The digital indirect channel

Sam Ramji is vice president of strategy at Apigee. Prior to Apigee, Ramji led open source strategy across Microsoft. He was a founding member of BEA’s AquaLogic product team. He also led the Ofoto engineering team through its acquisition by Kodak. He holds positions on the boards of the Outercurve Foundation for open source and the Open Cloud Initiative, and he is a contributing editor to the ACM’s journal Ubiquity.

Sam Ramji of Apigee explains why APIs are of strategic importance to all businesses.

Interview conducted by Vinod Baya and Ted Shelton

PwC: APIs [application programming interfaces] are something the software industry has known and used since their inception. Why are they more important now?

SR: A key challenge to business always has been how to build bigger and bigger systems of coordination, because the bigger the system, the greater the power and the more things it can do. This led me to be interested in distributed computing. What is well known is that to create distributed intelligence, one needs to collaborate. Over the years, the barrier to collaboration has decreased dramatically with Internet and digital technologies, which is a significant change. More recently is this Cambrian explosion of devices. It’s not just a mobile device, but it’s a TV, a car, or an appliance, and almost anything when you look at what is being called the Internet of Things. Industry estimates forecast 15 billion mobile Internet-connected devices by 2015 and orders of magnitude more non-mobile Internet-connected devices.

Another change is that the homogeneous world of PCs, Macs, or web browsers is transitioning to a heterogeneous world where almost anything can have an IP address and be open to collaboration. How will such a large system be coordinated? To collaborate, they all need an easy mechanism to connect and communicate. That is why APIs are important. They provide such a mechanism in a digital ecosystem.

PwC: Why is that important to business?

“What is happening is that we have started to expand the software supply chain. Today, a third party—sometimes multiple third parties—is involved in getting your signal all the way to the edge where the customer is.”

SR: What is happening is that we have started to expand the software supply chain. Today, a third party—sometimes multiple third parties—is involved in getting your signal all the way to the edge where the customer is. If you want to get your signal to an end consumer who is using an Android tablet, you’ll need to expose digital signals from your business in a way that a third party with the expertise in designing a really satisfying experience for that market niche can include your signal.

When we step back to see what the big revolution is, we see that APIs are the first serious digital indirect channel. Although physical indirect channels have supported businesses for a long time, the equivalent in the digital domain has been unclear so far.

PwC: How is this different from the web so far?

SR: The winners in the current digital indirect platform era are those who can take the interaction costs to zero. Interaction costs became much lower with the web, but the reason they were low is because a very smart actor—a human—was on the far side of the browser.

Humans are adaptable, and that created a couple of issues. For example, if for competitive reasons the marketing department changed the website interface—the way you engaged with the customer—that was OK, because the customer would adapt. In this digital indirect world, the actor at the other end is not that smart. It’s a piece of software, it can be brittle, it’s as it was written. Now if you change the interface, you break the software, which raises the need for companies to manage the interfaces—the APIs.

PwC: The focus on the developer community seems different from before. Why is that?

SR: One impact of the proliferation of devices is that it results in so many use cases that enterprise developers can’t possibly build fast enough to keep up with the demands of businesses and consumers. It helps to look at the numbers. Today there are about half a million enterprise developers. With modern-day methods based on RESTful [representational state transfer] and JSON [JavaScript Object Notation] interfaces that are easy to use, loosely coupled, and coarsely grained, there is an addressable audience of about 5 million developers.

When you get a step function like that—an order of magnitude shift in the number of developers who have the requisite skill and talent—you end up with outsize network effects, capable of meeting the demand created by the proliferation of devices and the Internet of Things.

All of this feeds back directly to the question, what is the economic basis? It is unlike the web, where 1 billion web-connected humans were mediated by half a million developers. In the future, probably 5 billion device-connected humans will be mediated by about 5 million developers. The value of each developer just went up by a factor of 20 to 50, and those developers are able to build many apps in their lifetime.

PwC: Much of REST and JSON adoption seems to be among digital-native and Internet businesses. What is the relevance to non-digital-native businesses?

“The API game is about unlocking latent value in data and information assets by combining them with other internal or external assets.”

SR: The API game is about unlocking latent value in data and information assets by combining them with other internal or external assets. The winners in the API game overall are going to be the smartest legacy businesses, because they have an unfair advantage of decades of transaction data as well as other information and data assets. They may have only a decade that’s worthwhile, but they have that. In this market, if companies can overcome their organizational inertia, incumbents actually have every opportunity to be the big winners in each industry with APIs.

PwC: What is the impact on the software engineering practices of organizations that need to adopt and offer their capabilities via RESTful APIs?

SR: Since APIs really promote co-creation dynamics, where you create new value directly or indirectly with third parties, the engineering and R&D burden is shared with the digital supply chain. For instance, Netflix uses APIs to get its services quickly on all the devices from which you are able to access them. The company did not need to perform all the R&D to learn how to build the software for each of those different devices. Instead, Netflix said, “Here are our APIs, here are the metadata APIs where people can log in and discover content, here is the Netflix-branded partner-restricted media, and here is the codec to do license management.” Netflix was in the role of being QA; no engineering required.

So API use shifts not just the cost but it also changes the agility, because the ecosystem has changed from a vertically integrated monolithic business concept to a distributed business where winners and losers can establish themselves in the market without you over-investing in any single one.

PwC: How do trends we have talked about impact the IT organization of any enterprise?

SR: There is clearly an impact at the edge of the IT organization. The web taught business self-service. By making information and transactions open and accessible, businesses found that customers could serve themselves.

“Going forward, it will be an imperative to be able to do self-service on the data, because modern enterprises need to be much more permeable than they are accustomed to being.”

The next level of self-service is self-service on the data, both for internal and external use. It is about opening data. For example, let’s say a marketing professional has $150,000 at the end of the quarter and gets an ad agency to build a mobile app to influence the competitive dynamics in the marketplace. How will they enable it to get access to corporate data and transactions? How can they do anything with it if access to corporate data is not easy? How long will it take? When an IT department is closed and its whole focus is on securing and locking everything, then that opportunity doesn’t exist.

Going forward, it will be an imperative to be able to do self-service on the data, because modern enterprises need to be much more permeable than they are accustomed to being. Protecting the data appropriately is essential while allowing self-service. So IT will increasingly focus on security, availability, and reliability. IT organizations must get away from feeling like they are responsible for building all the things the business wants and instead enable the organization to be agile by providing self-service on data.

PwC: What should CIOs of enterprises do to take advantage of APIs?

SR: The real opportunity for CIOs is to develop the strategy for how the enterprise participates in the digital indirect channel. The fact that they’re a CIO at a major enterprise means they already understand and have the capability to conduct channel-based business. They need to get the channel leadership, marketing leadership, and technology leaders in one room and say, “We have a new channel.”

The new channel is a capability, usually an app, built by third-party developers. Understand the channel, segment it, and figure out which segment points most effectively to the markets most strategic or the most under threat. Together develop an ecosystem model that can be supported with a technology and business platform. It’s a strategy for a new channel.